1. FINANCIAL STATEMENTS
Chapter 7

2. Chapter 7 Goals
Define/explain accounting terms and concepts related to financial statements.
Prepare an Income Statement, and analyze it using component percentages.
Prepare a Balance Sheet.

3. Standards Addressed:
1.1.11F – Identify, define, and apply key vocabulary
1.1.11D – Identify, describe, and analyze key concepts in chapter.
2.2.11A – Develop and use computation concepts with real numbers.

4. Vocabulary
Income Statement – a financial statement showing the revenue and expenses for a fiscal period.
Net Income – the difference between total revenue and expenses when total revenue is greater.
Net Loss – the difference between total revenue and expenses when total expenses is greater.
Going Concern - the expectation that a business will stay in operation indefinitely.
Stakeholders – any person(s) or groups affected by an action.

5. Vocabulary
Adequate Disclosure – all necessary info. Included to understand a business’s financial condition.
Accounting Cycle – when financial statements are always prepared at the end of a fiscal period.
Balance Sheet – a financial statement that reports assets, liabilities and owner’s equity on a specific date.
Accounting Equation – an equation showing the relationship among assets, liabilities, and owner’s equity.

6. THE INCOME STATEMENT
Purpose: indicates financial progress of a business – net income or net loss
Used to report over a specific fiscal period
Parts: heading, revenue, expenses, net income or net loss
Source: Income Statement section of the work sheet

7. INCOME STATEMENT
Matching Principle – (aka Matching Expenses with Revenue) – revenue earned and expenses incurred to earn are reported in the same fiscal period.
Component %:
The % relationship between one financial statement item and the total revenue
Sales is ALWAYS 100%
Net Income (Loss) or Total Expenses / Total Revenue

8. INCOME STATEMENT

9. THE BALANCE SHEET
Purpose: indicates financial condition of a business on a specific date
Reports: A = L + OE
Parts: heading, assets, liabilities, and OE
Source: Balance Sheet section of the work sheet
Total OE = Capital + Net Income – Drawing
Total OE = Capital – Net Loss – Drawing

10. BALANCE SHEET

11. Balance Sheet – reported in detail